Patient Cypriots Wait as Banks Reopen

Cypriots queued at banks as
they reopened on Thursday under tight controls imposed on
transactions, but there was no sign of a run on deposits that
had been feared after the government was forced to accept a
stringent EU rescue package.

Cypriots queued at banks as
they reopened on Thursday under tight controls imposed on
transactions, but there was no sign of a run on deposits that
had been feared after the government was forced to accept a
stringent EU rescue package.

Banks were shut almost two weeks ago as the government
negotiated a 10 billion euro ($13 billion) international bailout
to avert a national bankruptcy, the first in Europe's single
currency zone to impose losses on bank depositors.

Bank staff turned up for work early as cash was delivered by
armored trucks, and queues of at least a dozen people formed at
branches in the capital, with uniformed security guards on duty.

Doors opened at noon (1000 GMT) but initially at least there
was no visible run on the banks, as had been feared.

A lot of money had already left electronically. Figures
published by the Central Bank of Cyprus on Thursday showed that
savers from other euro zone countries withdrew 18 percent of
their deposits from the stricken island in February, as talk of
a tax on bank accounts gained ground.

Overall private sector bank deposits in Cyprus fell by 2.2
percent to 46.4 billion euros last month, after a similar drop
in January.

Authorities say the emergency rules imposed to limit
withdrawals and prevent a bank run will be temporary, initially
for seven days, but economists say they will be difficult to
lift as long as the economy is in crisis.

The government said it had appointed a panel to investigate
the banking meltdown and look into claims of junior bondholders.

"It will have a broad mandate," said Constantinos Petrides,
under-secretary to the Cypriot president. "It will investigate
criminal, civil and political responsibilities."

The capital controls decree was taped to the windows of bank
branches and staff handed out copies to customers. In Nicosia,
there was relief, but some apprehension about what might happen.

"You've no idea how much I've been waiting for this," said
64-year-old pensioner Froso Kokikou, waiting in line at a branch
of Cyprus Popular Bank, also known as Laiki.

"I feel a sense of fear and disappointment having to queue
up like this; it feels like a Third World country, but what can
you do?" Kokikou said. "This is what they imposed on us and we
have to live with it."

MATURITY

Kostas Nikolaou, a 60-year-old pensioner, said the
uncertainty of the past two weeks had been "like a slow death".

He added: "How can they tell you that you can't access your
own money in the bank? It's our money, we are entitled to it."

Many of those waiting in line were elderly people, who said
they had run out of cash because they did not have bank cards.

President Nicos Anastasiades praised the "maturity and
responsibility" shown by Cypriots in the face of the crisis.

"We have shown that not only do we want to drag our country
out of this difficult position, but that we will do it," a
statement from the presidency said.

Anastasiades has taken a 25 percent pay cut, while cabinet
ministers' pay will go down by 20 percent, an official said.

The Cyprus stock exchange said it would remain closed on
Thursday.

On international markets, German 10-year bond yields fell to
their lowest level since August on fears of spillover from the
Cyprus crisis to other struggling euro zone members. Yields
fell 2 basis points to 1.256 percent. Traders
cited the risk that depositors in other countries could take
fright at any signs of a run on deposits in Cyprus.

Container trucks loaded with cash pulled up inside the
compound of the central bank in the capital Nicosia on Wednesday
night to prepare for the reopening, a central bank source said.

CASH LIMITS

A Finance Ministry decree limited cash withdrawals to no
more than 300 euros per day and banned the cashing of cheques.

The island's central bank will review all commercial
transactions over 5,000 euros and scrutinise transactions over
200,000 euros on an individual basis. People leaving Cyprus may
take only 1,000 euros with them.

A police source told Reuters that passengers leaving Cypriot
airports were subject to extra searches. Notices at Larnaka
airport warned travellers of the new restrictions and officers
had orders to confiscate cash above the 1,000 euro limit.

With just 860,000 people, Cyprus has about 68 billion euros
in its banks - a vastly outsized financial system that attracted
deposits from abroad, especially Russia, as an offshore haven
but foundered when investments in neighbouring Greece went sour.

The European Union and International Monetary Fund concluded
that Cyprus could not afford a rescue unless it imposed losses
on depositors, seen as anathema in previous euro zone bailouts.

That view has angered Cypriots, whose foreign minister said
his country was sacrificing too much for the bailout.

"Europe is pretending to help us but the price to pay is too
high: nothing less than the brutal destruction of our economic
model," Ioannis Kasoulides told the French newspaper Les Echos.

"CYPRUS EURO"

Cyprus's difficulties have sent tremors through the already
fragile single European currency zone. Yields on Slovenia's
two-year bonds surged to nearly 7 percent on Thursday in a sign
that investors are pricing in a high risk of default, despite
denials by the new government that it needs a bailout.

The imposition of capital controls has led economists to
warn that a second-class "Cyprus euro" could emerge, with funds
trapped on the island less valuable than euros that can be
freely spent abroad.

Reflecting fears of a spillover, ratings agency Moody's said
it kept euro zone strugglers Ireland and Portugal on negative
outlook, citing the Cyprus bailout as an extra risk.

The European Commission said the capital controls were legal
and justified under EU law provided they were strictly temporary
and proportionate. The EU executive said it would monitor "the
need to extend the validity of or revise the measures".

The bailout, agreed in Brussels on Monday, looks set to push
Cyprus deeper into an economic slump, shrink the banking sector
and cost thousands of jobs.

Cyprus Popular Bank, the country's second biggest,
will be closed and its guaranteed deposits of up to 100,000
euros transferred to the largest bank, Bank of Cyprus.

Deposits of more than 100,000 euros at both banks, too big
to enjoy a state guarantee, will be frozen, and some of those
funds will be exchanged for shares issued by the banks to
recapitalise them.

While big depositors will lose money, the authorities say
deposits up to 100,000 euros will be protected.

"How can they tell you that you can't access yourown money in the bank? It's our money, we are entitled to it." How do the banks feel about the government stepping between them and their customers? Banks depend on the confidence of their customers. Now, in Cypress, it's a place for government to dip in and take what they decide they need.